DNA Money Edit: RBI breather for banks facing MTM loss

The RBI's move to let banks spread provisions for bond losses suffered in the third and fourth quarters of 2017-18 over the next four quarters has given them a breather. The apex bank has now cleared the option to spread provisioning for mark-to-market (MTM) losses on investments held in the available-for-sale (AFS) and in the held-for-trading (HFT) for the quarters ended December 2017 and March 2018. The apex bank wants to address the systemic impact of sharp increase in the yields on government securities.

The benchmark bonds have been trading around 7.5% since last November. Bond yields have risen sharply over the past six months on concerns over excess government bond supply. This has meant that banks have had to incur losses on their bond portfolios by marking down prices. Bond prices are inversely correlated to bond yields.

Analysts had estimated investment losses at over Rs 15,000 crore in the December quarter alone while the losses for the whole year is yet to be ascertained. This is in contrast to the huge gains of over Rs 1 lakh crore made by banks in 2016-17.

The RBI move surely brings respite for banks now facing a massive spike in bond yields over the past two quarters.